What happened

Shares of Sprouts Farmers Market (SFM 0.70%) rose 11% over the past week, according to data from S&P Global Market Intelligence. The supermarket chain delivered higher-than-expected profits and issued an encouraging growth forecast for the year ahead.

So what

Sprouts' net sales climbed 6% year over year to $1.6 billion in the fourth quarter, driven by store count expansion and increased sales at the grocer's existing locations. Sprouts opened 16 new stores in 2022, ending the year with 386 stores across 23 states.

Meanwhile, Sprouts' comparable store sales grew by 2.9% in the fourth quarter and 2.2% in 2022. That topped Wall Street's expectations, which had called for Q4 comp growth of 1.9%.

The solid sales performance also lifted the food retailer's profit margins. Sprouts' operating income surged 20% to $62 million. And its earnings per share, boosted by stock buybacks, soared 31% to $0.42. That, too, surpassed analysts' estimates, which had called for per-share profits of $0.37.

"These solid trends reflect the resilience of healthy, natural, and organic food, and give us confidence in our future business," CEO Jack Sinclair said in a press release.

Now what

Sprouts intends to open 30 new stores in 2023 and close 11 underperforming stores that do not fit the company's current smaller store format.

All told, Sprouts full-year guidance calls for:

  • Net sales growth of 4% to 6%
  • Low-single-digit comparable store sales growth
  • Adjusted operating income of $355 million to $370 million
  • Adjusted earnings per share of $2.41 to $2.53

"While we recognize the near-term economic environment is difficult to predict, the stability of our recent sales is encouraging," Chief Financial Officer Chip Molloy said. "We are optimistic about our ongoing cash generation and our ability to invest in our business for growth."